Agreement, prohibiting a lifetime sale to a third party without offering the shares to the Company. The Agreement also established: (i) put options so the Shareholder at death at book value and (ii) call options in the company for one year after death at the same price. Subsequently, in 1995 the Agreement was modified and an adjustment to the price was established by the Court in a Family Settlement Agreement at $118 per share.
However, a subsequent Agreement between Rod’s trust and the Company obligated the Company to buy the trusts shares for $217.50 share upon the death of a Shareholder.
Upon the decedent’s death, the estate reported the stock at a value of 118 per share or $993,000. The shares were, in fact sold back to the Company for $1,447,000. The balance of the funds received by Rod’s trust was reported as a capital gain.
The Tax Court held that the 1995 Agreement established the fair market value for the shares. It stated that it met the requirements of Section 2703, and in particular, its terms were comparable to similar arrangements entered into by person’s in an arms length transaction. .
1.No one valuation formula is equally appropriate for all businesses.
a.This approach may eliminate future disagreement regarding the methodology the determining value but lacks predictability. Therefore, it is difficult to prefund the purchase price.
Scca/99999.008/Doc#82/Speech for Lake County Estate Planning Council